Professional Documents
Culture Documents
I
am
grateful
to
Sebastian
Kellner
Graduate
student
at
the
CBS
OIE
Program
for
valuable
support
in
putting
important
parts
of
this
case-study
together,
and
to
CIEL
for
funding
an
important
part
the
time
that
went
into
this
case
project.
Some
interviews
marked
by
quotation
marks
were
made
by
myself
at
company
visits
in
2008
and
2011.
Please
read
this
as
work
in
progress
and
in
line
with
case-reflection
number
5
let
us
know
how
you
would
like
the
case
to
be
developed.
Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
From 2003 until August 2007 Martin Eberhard was the CEO of Tesla Motors and also
responsible for research & development. He was one of the driving forces in the early days of
Tesla and created a community around the start-up, making employees, shareholders and
customers equally committed to bringing the company to live. In 2010, Volkswagen hired Martin
Eberhard to head up their battery lab. His major task was the battery lab in Silicon Valley to
support the electrification of some VW models and prototypes from the Volkswagen garage
bringing the Audi E-Tron and the VW E-UP! for intensive testing to the streets of California. At
the time when Eberhards contract expired both sides agreed on parting their ways, offering
Eberhard the opportunity to start a new, yet undisclosed car-related business.
Marc Tarpenning
Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
Roadsters technology. Kohler wasnt impressed. He wasnt here to talk about a flashy, limitedrun show car. He wanted to know if Tesla could mass-produce battery packs quickly for the
Smart. His frosty demeanour indicated that, in his opinion, it didnt seem likely.
Weve actually got something to show you, Musk said and asked the Daimler execs to follow
him.
Kohler spotted the shiny new Smart sitting in the middle of the garage and didnt smile. It might
have seemed like a gimmick at first. Musk managed to get a Smart into the US. Big deal.
Its electric, Musk said.
What do you mean? Kohler asked.
We put in a Tesla battery and motor.
Kohler examined the car. Straubel had been careful not to alter its shape or interior, so it was
impossible to tell that it had been modified. Kohler got behind the wheel and Musk hopped in the
passenger seat. When the German stepped on the accelerator, the car bolted out of the garage and
disappeared. Straubel waited nervously with the other Daimler executives. After 15 minutes, the
Smart tore back into the garage. Straubel noticed that the normally taciturn Kohler was trying
hard not to smile.
Lets explore a partnership, Kohler told Musk.
As a result of the convincing test-drive, Daimler started the development of a test fleet of 100
smart EVs together with Tesla. The developed EV Smart cars were used to evaluate the EV
concept in London with day-to-day assignments together with fleet operators and private users.
Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
Daimler as a partner
In 2009, 18 months later, Daimler decided to acquire a 10 percent stake in Tesla and to create a
corporate partnership to drive the development of their battery technology. During the press
conference, Elon Musk and Dr. Thomas Weber provided a bit more insight on their plans.
"Our strategic partnership is an important step to accelerate the commercialization of electric
drives globally," said Dr. Thomas Weber, Member of the Board of Daimler AG, responsible for
Group Research and Mercedes-Benz Cars Development. "As a young and dynamic company,
Tesla stands for visionary power and pioneering spirit. Together with Daimlers 120 years of
experience in the automotive sector this collaboration is a unique combination of two companies'
strengths. This marks another important milestone in Daimlers strategy for sustainable
mobility."
"Daimler has set the benchmark for engineering excellence and vehicle quality for more than a
century. It is an honor and a powerful endorsement of our technology that Daimler would choose
to invest in and partner with Tesla," said Tesla Chairman, CEO and Product Architect Elon
Musk. "Daimler is also on the leading edge in the field of sustainable mobility. Among others the
lithium-ion pouch-cell battery developed by Daimler and especially designed for automotive
applications is of interest to us. We are looking forward to a strategic cooperation in a number of
areas including leveraging Daimlers engineering, production and supply chain expertise. This
will accelerate bringing our Tesla Model S to production and ensure that it is a superlative
vehicle on all levels. Together on the road to electro-mobility.
The two companies have already been working closely to integrate Teslas lithium-ion battery
packs and charging electronics into the first 1,000 units of Daimlers electric smart car. In order
to benefit from each others know-how, the investment enables the partners to collaborate even
more closely on the development of battery systems, electric drive systems and in individual
vehicle projects.
As part of the collaboration, Prof. Herbert Kohler, Vice President E-Drive and Future Mobility at
Daimler AG, took a seat on Teslas board of directors.
In July 2012, Daimler divested part of its shares to an Abu Dhabi investment fund keeping only a
4,7% stake in Tesla Motors. Still, Elon Musk recently admitted that not only Daimler benefited
strongly from Teslas IP but also secured the survival of the Tesla Motors:
"The credit for saving Tesla should go to Daimler. It was the Daimler investment that saved
Tesla in early 2009. [...] 2007 and 2008 were especially bad for us. [...] There were a couple of
near-death situations" (Autoblog.com).2
http://www.autoblog.com/2012/09/05/elon-musk-the-credit-for-saving-tesla-should-go-to-daimler/
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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
Dr. Herbert Kohler, Elon Musk and Dr. Thomas Weber at the press conference in July announcing the partnership
between Daimler and Tesla Motors.
Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
The Toyota Rav4 electrified by Tesla Motors shown on the Detroit Motor Show
Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
All of the components fit between the frame rails and what would be the engine compartment in
a conventional truck, so theres no loss in cargo space or capacity. The electric van will have a
2,500-pound payload. Although the battery pack weighs 900 pounds, the electric drive train is
lighter than the engine and transmission it replaced.
Tesla Accelerates
Over the course of 2008, Tesla solved the production problems on the Roadster and, one by one,
the cars started to hit the streets and many reviews were positive. Car and Driver called it a
revelation and Motor Trend gushed, The Roadster is a cool automobile technically, a cooler
automobile to drive, and an historic game-changer in our perception of battery-electric vehicles.
Musk accumulated hundreds of orders for the $109,000 car. It looked like the company might
survive after all. Musk, however, wasnt interested in just surviving. Though he said the
company could reach profitability if it focused just on the Roadster and the battery pack
business, he didnt rein in his ambition. The point, after all, had never been to supply fast cars to
rich people. The point was to transition the world to electric transportation. He obviously didnt
think small. His other main business, a rocket company called SpaceX, aimed to replace the
space shuttle and eventually take people to Mars.
Developing the Model S
With Tesla, the Roadster was simply a proof of concept that set Musk up for the next step in his
business plan: the Model S. The difficulties Musk encountered with the Roadster hadnt made
him wary of innovation. In fact, in the summer of 2008 he got bolder: To rev up the sedan effort,
he hired Mazdas lead North American designer, Franz von Holzhausen, and told him that he
wanted a four-door car that seated seven. Thats an SUV, not a sedan, von Holzhausen
responded.
Musk countered that von Holzhausen had a rare opportunity to design something new. The
Roadster was based on a modified Lotus chassis that was manufactured in England and shipped
Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
to Tesla for final assembly. With the Model S, they were going to build their own chassis from
the ground up. Since this new platform didnt have to accommodate exhaust pipes, thermal
shielding to protect against engine heat, or bulky catalytic converters, there would be a lot of
extra space. That meant it was theoretically possible to put in a third row of seats. Musk didnt
just want to build a functioning electric sedanhe wanted to redefine what a sedan could be.
Given the positive response to the Roadster, Musk was confident that he would be able to raise
another $100 million that summer to send the Model S into production. Goldman Sachs was
arranging the financing and sounded bullish. Then the subprime mortgage crisis began to spiral
out of control. Suddenly major banks were on the verge of collapse and Goldman failed to raise
any capital.
Week after week through the fall of 2008, Musk watched Teslas bank balance drop. His team
had been able to bring down the cost of producing the Roadster to approximately $95,000 by
renegotiating supplier contracts and redesigning parts to be simpler. Still, Tesla had presold the
car in 2007 to hundreds of buyers at a discount price of $92,000. Costs were continuing to
dropthey could make it to profitability if they didnt go out of business firstbut by the end of
the year, Tesla had less than $500,000 in the bank. They were in danger of not making payroll.
Bloggers mounted a Tesla death-watch.
Musk was down to the last $20 million or so of his personal fortune. Tesla and SpaceX had
consumed the rest. If he held on to the $20 million, he could walk away and still be rich. He was
37 years oldhe had plenty of time to try something less risky. He called his younger brother,
Kimbal, who had invested more modestly in Tesla, and told him that the company needed
another cash infusion. The two had made millions together in 1999 when they sold Zip2, an
online media services company, to Compaq.
Kimbal actually found himself believing they could make it and agreed to put in more of his own
money. Musk soon persuaded most of his other investors to pony up emergency funds, raising a
total of $40 million. The emergency funds kept Tesla afloat, and almost immediately things
started to unfold just as Musk had predicted. With partners like Daimler and Toyota, Tesla
slowly but steadily came into a stage where the product- and technology development could be
taken as the highest priority again.
The Model S
In March 2009, von Holzhausen had finished a prototype. It was certainly no ordinary sedan. The
car had the sexy, sloping lines of a Porsche and the muscular stance of a BMW. The company
unveiled it in front of hundreds of people at Musks rocket factory near Los Angeles. When von
Holzhausen dramatically pulled a silver sheet off the car, it sparkled under white spotlights.
Youll see that this isnt some show car that doesnt do what it says itll do, Musk told the
crowd. Itll go fast with a lot of people in it.
I wanted to make something that would stand out completely from the crowd. It needs to be
completely new and unique. I got a unique opportunity from Elon and I did not want to screw it
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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
up. It is all internal work. There was no competition or any stream of external input. The sport
version of Model S will come with some surprises, said Franz von Holzhausen the chief
designer.
To set up a team for the Model S many key player had to combine their knowledge and
sometimes during the process even new employees had to be recruited.
Manufacturing Managers: Patrick Wetherell and Michael Anderson -both Senior Technicians
Plant Engineering- described the process as challenging:
Tesla has a very rigorous recruitment process for manufacturing engineers. Each candidate has to
write an essay on specific topics given at the interview. It is claimed that Elon Musk reads each
file before making a recruitment decision. We are 180 people in the Fremont plant, which used to
have 5000 employees.
Patrick used to be part of logistics, vehicle performance testing and dealt with installations. Mike
has a background in specific tooling and production control processes. Tesla has a vast pool of
experienced experts to choose from. During the recruiting they ask quite challenging questions in
the recruitment process. There is a strong focus on what can you do for us?
Mike: The main-difference is the mindset and the organizational culture that have totally
changed. Now we are much more open to change. During the old days often reached the point,
were we said: we cant do it that way - now at Tesla we will find a way to make it work. In the
old days, we just brought the problems but no solutions. Now we never bring problems without
also bring solutions. I was more tired in the NUMMI days I really was.
Tesla is trying to change the way in which the automotive industry thinks. People are hungry;
they are ready to give a 110%, they are ready for change! New Years eve was my last day with
NUMMI then I started with Tesla on January 3rd. My wife used to work here before and she did
not believe her eyes when I showed her how we have put this facility into shape. Two months
ago, this place looked completely different. Now we will put in skylights and solar cells. There
are also rumors that we will get windmills to offset some of the electricity costs.
Patrick: Whats going to make manufacturing work this time is the product itself. People are
motivated to make a product that will make a difference and actually work. When you see the
product and get to drive it, it moves you. Tesla will keep developing its technology and stay one
step ahead of competitors.
Also the operational structure changed for the production facility of the Model S. When taken
over the NUMMI from Toyota the TPS was in place (Toyota Production System) but we did not
use it. Rather than stopping the line if there was a quality problem, the line would just continue
to run. Now we work much more organized and try to address challenges in a new way.
George Blankenship the former chief strategist of apple overseeing now the retail activities at
Tesla described the relationship of Tesla to its stakeholders at the unveiling of the Model S as
something extraordinary:
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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
With Tesla you will never be a number in a spreadsheet we will always see you as family. We
will give you access to things that no one else will do! We are not BMW or Daimler! We will let
you discover our plant, show you our ideas and let you take pictures and videos of what you see.
We will take our time and introduce you to the world of Tesla and with you help, we will bring
you the Model S, the Model X and all other things that will follow up in the future.
The approx. 1735 kg light sedan has a sports car performance, accelerating in 5,6 seconds from 0
to 60 MPH (98 km/h) and accommodates five seats in the passenger room as well as adding two
extra seats in the trunk. This allows seven persons to travel in this high-speed electric vehicle
with a maximum speed of 200 kilometers per hour and a range of more than 480 km with the
high end 85 kw/h batteries. Additionally to the high-end version of the Model S costing around
US$100.000, Tesla is planning to provide models with shorter range and fewer accessories in a
lower price spectrum, which will come down to US$50.000 in the base model.
Three months after the Model S unveiling, the federal government announced that it would loan
Tesla $465 million to bring the sedan to market as part of the Advanced Technology Vehicles
Manufacturing Loan Program. Established manufacturers received substantially more to develop
their electric vehicle programs. Ford, for instance, was awarded $5.9 billion.
Elon Musk- Entrepreneur and CEO
He is an excellent leader with good communication; perseverance and constant feedback loop,
allowing him constantly evaluate the own behavior and listen to what people are telling him.
Running SpaceX and Tesla Motors at the same time requires good time management, flexibility
and a lot of power to keep the spirit up. But probably it is also the management style that gives
him the ability to handle all this challenges at a time.
Major Management Principles of Elon Musk
As a serial entrepreneur Elon Musk discovered multiple challenges in the activities that are
undertaken by his companies. In general he defined four principles that help him to overcome the
challenges an entrepreneur and a uprising company has to face and to handle.
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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
1. Be Ready to Work
If you are motivated enough to start a company, you better be motivated enough to work hard to
keep it going because helming any business is no small task, Musk explained.
"It's a super huge amount of work. I think sometimes people sort of have this idea that if they
were the CEO of a company that they would just give themselves a whole lot of vacations and
not work very hard," he said. But actually the reverse is true.
"If you're the CEO of a company, you have to work your bloody ass off. And if you're the CEO
of two companies you have to work two bloody asses off and you dont have two asses."
And some factors beyond your control can make the job even harder. The dismal economy in
recent years has made for gruelling runs at both SpaceX and Tesla Motors, as well as for Musk.
He's thankful the economy is improving.
"It really took a lot out of me," he said. "I have a lot of mental scar tissue."
2. Be Ready to Learn
One of the biggest lessons Musk learned after founding SpaceX (Space Exploration
Technologies) was how much more there was still yet to learn.
Despite a background steeped in physics, Musk ended up with a tough self-teaching job in order
to design SpaceX's first rocket (the Falcon 1) and the larger Falcon 9 booster that made its
successful launch debut in June.
"It was a huge learning curve for me because I had never designed anything physical apart from
building rockets as a kid or something," Musk said.
"Initially I didn't intend to be the chief designer of the rocket; I kept trying to hire someone to be
chief designer of the rockets. But the people who were willing to join early on weren't up to the
task and the people that were weren't willing to join. So I ended up by default becoming the chief
rocket designer, which obviously has its plusses and minuses."
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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
"I think it's incredibly important to pick the right people. The right team can accomplish
miracles. The wrong team, well.or if a team isn't working together well that can be a huge
problem as well," Musk said. "It's just really like any sports game. Running a companyit's like
if you're running a major league baseball or football team, or something like that. It's just how
good are your players? How good are they working together? And that will define success. "
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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
External Threats:
If the economy does not improve, may have trouble generating revenue to pay back their
debt.
Competition! Automakers already have production and distribution systems, and may
have more ability to absorb losses.
The end of subsidies and tax credits.
Bad consumer reviews.
A new company is vulnerable to the effects of criticism.
The EV market is still small, worldwide due to expense.
Challenge of achieving market penetration in an already saturated auto market.
Partnered firms may reverse engineer Teslas intellectual property. Tesla lost a suit
against a partner, Fisker Auto, claiming patent infringement.
Disruptive technologies from competing firms.
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Sigvald Harryson & Sebastian Keller Case Study on Tesla Motors Part I
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